Each year, a company either makes a profit or takes a loss. If the com

Sheelmgal1p

Sheelmgal1p

Answered question

2021-11-16

Each year, a company either makes a profit or takes a loss. If the company made a profit the year before, they will make a profit with probability 0.7. If they took a loss the year before, they will make a profit with probability 0.3. What is the long-run probability the company will make a profit?

Answer & Explanation

Harr1957

Harr1957

Beginner2021-11-17Added 18 answers

Step 1
Given:
If the company made a profit the year before,
Probability of profit is,
P(p1)=0.7
Probability of loss is,
P(L1)=10.7
P(L1)=0.3
If the company made a loss the year before, probability of profit is,
Probability of profit is,
P(p2)=0.3
Probability of loss is,
P(L1)=10.3
P(L1)=0.7
The objective is find the long-run probability the company will make a profit.
Step 2
Let the transition matrix of two different situations is,
P=(p1L1p2L2)
P=(0.70.30.30.7)
Lets

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